Casey's Daily Resource Plus - June 24, 2009

In Today's Edition

• Precious metals go soft - Lingering memories of Monday mute Tuesday trading.
• Dollar plunges against euro - Existing home sales come in weak.
• Crude rallies - Rise in inventories expected.
• Base metals move higher - Weaker dollar the prime mover.

Precious Metals

Gold fell below $915 at the mid-point of Hong Kong trading on Tuesday, but that proved to be the low for the day, as the metal rallied from there to the New York open, went flat until mid-morning, when it sold off again, but then pushed higher to the end of the Comex before leveling off through the Globex to finish at $925.80/oz., up $3.20. Overnight, gold has been pushing higher.

Platinum followed up Monday’s beating with a dead flat day, as it never strayed from the $1150-1170 range and ended in the middle at $1159/oz., down a buck. Overnight, platinum is trending higher.

The Price of Things Resource Last 1 Week Ago 3 Months Ago 1 Year Ago Gold 925.50 934.60 936.80 882.90 Silver 13.81 14.17 13.69 16.75 Platinum 1159.00 1215.00 1126.00 2035.00 Palladium 233.00 241.00 208.00 465.00 Copper 2.19 2.24 1.82 3.84 Nickel 6.65 6.71 4.37 9.76 Zinc 0.50 0.50 0.50 0.85 Uranium 53.00 50.00 42.50 57.00 Oil 69.00 70.00 53.59 136.00 Gas 3.88 4.12 4.32 13.22

Silver traced out almost exactly the same path as gold, closing at $13.81/oz., up 11 cents. Overnight, silver is sharply higher.

Monday’s debacle was likely fresh in traders’ minds as the precious metals limped home with modest gains in the case of gold and silver, unchanged for platinum.

That had to be disappointing to the metals’ fanciers as the dollar, which has been a primary inverse driver for the sector, plummeted against the euro. In addition, rising oil prices should have been supportive. But buyers just failed to appear.

Analysts said investors were simply being cautious ahead of today’s monetary policy statement from the Fed.

“I would be surprised if they did anything dramatic. The Fed is trying to nurse the recovery along without killing off the housing market again. In terms of gold, it keeps the uncertainty up there a bit. That keeps a floor (under prices),” said Michael Wallace, global market strategist at Action Economics.

However, Wallace added, “in the bigger picture, we may see a saucer-shaped recovery, which helps keep a lid on prices.”

Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, slipped to 36.37 million ounces on Monday, from 36.4 million. It was the first decline in 11 sessions.

And while platinum continues to languish on a perceived fundamental weakness, John Reade, of UBS in London, wrote that, “We still like platinum’s fundamental demand drivers more than those of gold,” making it even more attractive as an investment.






Currencies and Economic News

In the currency market, the dollar was hammered against the euro. Late Tuesday, the euro was trading at $1.4089 vs. $1.3864 on Monday.

“The stock market and the broader green shoots rally appeared to have lost some momentum last week,” said Michael Woolfolk, of the Bank of New York Mellon. “But it appears that risk aversion is off the table for the time being and players are looking to the FOMC meeting …”

At the conclusion of its meeting today, the FOMC is almost universally expected to leave its fed funds rate target in a range of 0% to 0.25%. However, investors will be watching to see whether the central bank makes any changes to its Treasury and mortgage asset-purchase program, with an eye toward further boosting liquidity.

Also on traders’ radar are the U.S. Treasury Department's three big note sales this week, says Dan Cook, of IG Markets. “It will be important to watch how well these auctions are subscribed by indirect bidders -- a category that includes foreign central banks,” Cook wrote. “Strong demand could bode well for a strong dollar as investors move back into dollar-denominated assets.”

The day’s only number was a National Association of Realtors report which said sales of existing homes rose only 2.4% in May, to an annual rate of 4.77 million units, from a downwardly revised 4.66 million pace in April. Economists had been looking for a 4.81 million-unit pace.

“Overall it's weaker than expected, but does show we're trying to carve out a bottom here. The foreclosure portion of sales is slowing down at least. One month's supply for single family homes is back down to the low for the year, so that's also a welcome sign. I don't know that it's a green shoot. It seems to be more of a stabilization in the housing market,” said Jacob Oubina, currency strategist with Forex.com.

Investors ignored a weaker-than-expected rise in the euro-zone purchasing managers index for June. The Markit euro-zone composite PMI rose to 44.4 in June from 44.0 in May, worse than a projected rise to 45.5. Anything under 50 indicates contraction.




Energy

In the energy market on Tuesday, crude for August delivery surged, closing at $69.24/barrel, up $1.74. July reformulated gasoline rose 3.35 cents, to $1.8932/gallon.

“Inventories expectations and the weak dollar are helping crude,” said Phil Flynn of Alaron Trading. Trading was “choppy with all the news that awaits us such as inventories and the Fed meeting.”

The Energy Information Administration will release its stockpile data this morning, with analysts expecting that U.S. commercial crude stocks will have dropped 1.2 million barrels, according Platts.

But fundamentalists are decrying the lock step inverse movement of crude and the dollar.

“The fundamentals don’t seem to matter,” said Bill O’Grady, the chief markets strategist at St. Louis-based Confluence Investment Management. “I can tell you what the oil market is going to do by just looking at the currency market.”






Base Metals

The base metals mostly posted green numbers on Tuesday. Copper rose from the pre-dawn hours to mid-morning in New York, dipped a bit, but then continued upward, finishing just off its intraday highs at $2.1851/lb., up 4 2/3 cents. Nickel traced a more jagged path, but in the end was also near its intraday highs at $6.6451/lb., up 15¼ cents. Zinc had a sharp morning drop, but rebounded to close at $0.6836/lb., up more than 2 cents. Aluminum moved slowly but steadily higher, eventually adding more than a penny, to $0.713/lb., while lead sounded the only sour note, dropping a penny and three-quarters, to $0.7357/lb.

Copper led most of the industrial metals higher, bouncing off of a 3-week low. “We’re seeing a snap-back in copper today in reaction to the weaker dollar,” said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. “The dollar has been a big factor for a lot of the commodities lately.”

Gains were probably capped somewhat, though, by the less-than-stellar housing report.

Analyst opinion largely remains cautious. As Bloomberg wrote: “Robin Bhar, an analyst at Credit Agricole SA’s Calyon unit in London, predicted prices for industrial metals will continue to decline, citing skepticism about the potential for a global economic rebound and the strength of demand from China.

“Copper … has climbed 57 percent this year as refined copper imports by China rose. The Asian nation, the world’s largest consumer of the metal, accounted for 38 percent of global copper demand in the first quarter, 11 percentage points more than a year earlier, Barclays Capital estimates.

“ ‘I sense disillusionment over the “green shoots” of recovery and concerns that China’s growth is now slowing,’ Bhar said by telephone [yesterday]. ‘We are probably a bit too high, given the demand and supply fundamentals that we are seeing’.”

China’s refined copper imports almost have to slow in the third quarter after setting records in May. Imports may drop to about 300,000 tons in Q3, said Yoshihiro Nishiyama, of Japan’s Pan Pacific Copper Co. That’s after imports of 748,281 tons in the first quarter and 655,177 tons just in April and May.

But London stockpile data continue to support copper. Inventories monitored by the LME declined another 1,325 metric tons yesterday, to 276,675 tons.




Resource Stock Roundup

The bulls and the bears battled to a draw during Tuesday trading on the Canadian Markets. For the tale of the tape, the TSX Exchange added 0.64%, while the TSX Gold Index was the big winner climbing 4.1% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, fell 0.42% with the decliners beating out the advancers by a 460 to 310 margin on a lower than normal 130 million shares traded.

It was a classic case of buy on rumour and sell on news for Underworld Resources. The company tabled the results for nine more holes on its White Gold property in the Yukon. Highlights from the Golden Saddle target included 3.16 grams gold per tonne over 44.5 metres. Underworld ended the day down C$0.36 at C$1.65.

B2Gold inked a deal to earn up to a 65 per cent stake in Calibre Mining’s NEN gold-copper project in Nicaragua. The price tag is C$8 million in exploration and completing a feasibility study. B2Gold ended the day flat at C$0.77, while Calibre added C$0.01 at C$0.15.

Shares of Timminco added C$0.35 to close at C$1.54 after the producer of solar grade silicon announced that it has resumed operations at its Becancour facilities thanks to increased demand.

Consolidation was the name of the game on Tuesday following Monday’s massive selloff. We will see what Wednesday trading has in store.





And then there's this... From Ed Steer:

In early Tuesday trading in the Far East, gold didn't do much of anything until shortly before 11:00 a.m. in the morning in Hong Kong. From that point, gold got sold off about $8 in an hour. Not a lot, but a pretty big move for the usually quiet Far East market. As it turned out, that was the low for world gold for the day. A quick retest of that price at 3:00 p.m. in Hong Kong...and gold was on its way higher...and the US$ much lower. This lasted through London trading, but ran into the usual brick wall at the Comex open in New York. Once the London p.m. gold fix was in at 3:00 p.m. [10:00 a.m. in New York]...down went the price. This didn't last long, and minutes before London closed for the day, a rally began that lasted almost until the end of Comex trading...and gold finished virtually on its high of the day at 5:15 p.m. I wonder how high gold would have finished in New York if the usual N.Y. bullion banks hadn't showed up in the first couple of hours of Comex trading...or beat the gold price down in Hong Kong earlier in the day?



However, if you look carefully at the US$ chart for Monday, you will note that the gold price 'lost' about $11 while the US$ 'rallied' about 43 basis points. But on Tuesday, gold 'gained' back about $3 while the US$ got hammered for 1.07 cents. Funny how that works, isn't it?



Silver's performance on Tuesday was almost a carbon copy of gold's.

Open interest changes for Monday's big down day in both metals is as follows...gold o.i. actually rose 1,329 contracts to 374,970...on volume of 102,936. Either someone was shorting the hell out of the gold market...or all the shorts that were covered, disappeared under an avalanche of increased spread trades...either of these actions will result in an increase in open interest on a price decline. Silver's 49 cent loss peeled off an impressive 4,536 contracts from open interest. Total silver o.i now stands at 106,844. Volume on Tuesday was a monstrous 51,216 contracts!

In the Comex Delivery Report yesterday, there 118 gold contracts and 16 silver contracts delivered. We're getting close to the end of the June delivery month...only three or four days left...and we're down to several hundred contracts to deliver in gold and a handful of silver contracts. There were no changes in either GLD or SLV yesterday...but surprise, surprise...the U.S. Mint has updated their eagle production for the second day in a row. They've reported minting another 10,000 one ounce gold eagles along with another 175,000 silver eagles...bringing the June totals of each up to 103,000 and 1,945,000 respectively. Not too shabby! And lastly, I note that over at the Comex-approved warehouses, another substantial chunk of silver was removed from their inventories. This time it was 999,555 ounces.

In other gold news, the usual N.Y. commentator had the following to report..."This morning the European Central Bank reported a fall in 'gold and gold receivables' of €20 million...'reflecting the sale of gold by one Eurosystem central bank.' This is 0.9 tonnes, and compares with 0.945 tonnes reported last week. [This is] far below the 9.6 tonnes weekly pace notionally needed to sell the Second Washington Agreement on Gold quota evenly, let alone the pace which would be needed to sell the annual 500 tonne amount by the end of September, when the second WAG year ends.

"After a decade of public official sales in the 400-500 tonne range from European Banks, it appears that the [circa] 400 tonne IMF sale Congress recently approved, is desperately needed if this pace of sales [or documentation of sales] is to be sustained.

"The Gartman Letter, which adroitly abandoned gold early on Monday, suggests that only a house rule against reversing positions too quickly stops a short being put on, envisaging $875-$885 as a target. [Gold's 200-day moving average - Ed] 'Never' is not a word wisely employed near gold, but this would require [Indian] rupee weakness of astonishing magnitude."

Three stories today...with the first two about real estate. The first story is about the upcoming debacle in commercial real estate in the United States. It's a story from the Financial Times in London...and bears the headline "Worries over systemic risk in CMBS sector". "A big question mark hangs over one large part of the market that is still dysfunctional: the market for securities backed by commercial mortgages." I thank Craig McCarty for the story...and the link is here.

The second real estate story involves the U.S. residential real estate market and the upcoming resets/foreclosures in the option ARMs arena. I have mentioned this issue many times over the last couple of years...and ran a story on it about ten days ago. Here's another. Karl Denninger, over at market-ticker.denninger.net, may have been born at night...but it wasn't last night, and I'm not about to argue with what he has to say in this piece entitled "More OptionARM Falsehoods". I consider it a 'must read'...and the link is here.

And lastly is the latest commentary from silver analyst Ted Butler. His piece this week is entitled "Straight Talk on Manipulation". I consider Ted's knowledge of the silver market to be definitive. Everything he writes is a 'must read' as far as I'm concerned...and so is this. The link is here.

The first anniversary of the CFTC's latest investigation into the bullion banks' price management of the silver [and gold] market is fast approaching. I note that someone may have had a special one-ounce silver coin minted in honour of that occurrence. It's not in particularly good taste, but speaks the truth nevertheless...and if I could get my hands on some, I'd buy them in a heartbeat...and send one to each of the 'usual suspects' at the CFTC. I thank Casey Research's John Grandits for the photo below.



The past seventy-five years have seen the growth of government from a relatively small entity charged with defending the borders, adjudicating disputes and delivering the mail; to a bloated nightmare creature whose tentacles reach into every corner of our existence. - Doug Hornig, Casey Research

In the next 72 hours we have another bond auction, a Fed meeting and options expiry for the July contract in gold and silver. If there ever was a reason to sit on the precious metals prices...these reasons would be a start. And I note that even Bill King over at the King Report says "the DJIA, S&P500, gold, CRB and oil are a strong sell on a daily basis"...and that "bonds and the dollar, both weekly sells, are close to signaling a daily buy." There isn't a precious metals bull in sight...and the bullion banks are still sitting there with grotesque short positions in both metals.

I think I'll open another bottle of wine.

See you on Thursday.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.




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